Half of Health Spending in the US Is Now Government Spending

US states continue to expand Medicaid, and it's happening even in so-called "red states." CNBC, for instance, reports how voters in "red states" Utah, Nebraska, and Idaho all approved ballot issues to expand Medicaid under new Obamacare provisions. Meanwhile, the voters in these states also handed control of state government to Republican governors and legislators.

At the state level at least, the expansion of government healthcare has now become pretty much a given in nearly all states outside of the South.

It continues to be a big issue in state-level elections, such as in Colorado, where the Republican candidate — who lost the election — spent much of his campaign condemning expansion of "government-run" healthcare.

But let's face it. A great many voters, whether Republican or Democrat, want to hear the magic words "safety net" when it comes to health care. This is why even voters in Idaho, voted to — as they saw it — expand the healthcare safety net.

The recent expansions of Medicaid, however, are just the latest step in a quickly expanding government-funded healthcare apparatus that has been growing for decades. Moreover, the government-sector on health is now so large, as to consume half of all healthcare spending in the United States.

Using data from the OECD's 2015 Health Statistics report, we find government spending in the United States accounted for 48% of overall health spending, compared with an OECD average of 73%:

And that was in 2013. It's a fairly safe bet that with the growing costs of Medicare and Medicaid, government healthcare spending has grown to at least equal private-sector spending.

It's also worth noting, that government-sector spending (mostly Medicaid, Medicare, VA, etc.) alone is similar to or greater than the same measure in most other OECD countries, and is on a par with Germany, Switzerland, Belgium, Austrian, New Zealand, and others.

According to the World Health Organization, per capita government spending on healthcare is the fourth highest in the world:

Needless to say, the idea that the US has a "free market" in health care is pure fantasy. The so-called safety net is huge, expensive, and dominates the industry. With so many Baby Boomers going on Medicare in the near future, and with continued expansion of Medicaid, it won't be many more years before a much larger majority of healthcare spending is done by governments.

This, however, won't mean a fundamental change in the the US healthcare system, but a continuation of an established trend.

I don't say this to advocate for more government spending on health care, but merely to point out that the US has not embarked on any sort of new road it hasn't already been traveling for years.

You Don't Need a Single-Payer System to Get to Single-Payer Levels of Health Spending

As it is, the US is moving toward levels of public spending that will rival those of some nations that aren't exactly known for any devotion to "free market" healthcare.

As it is now, government-sector spending in the US is similar to that of Chile (which, by the way, has a slightly higher life expectancy).

Given the growth of Medicare benefit spending has nearly doubled over the past decade, it's not impossible to imagine overall public spending rising to levels we now see in some countries with so-called "socialized" medicine.

After all, contrary to the widely-held misconception that all healthcare (including prescription drugs) in Canada is "free," nearly 30 percent of all healthcare spending takes place in the private sector — mostly to cover prescription drugs, dental care, and other types of care not covered by the state.

Moreover, healthcare in the US offered by ostensibly private sector firms in the US is done overwhelmingly through heavily regulated and highly bureaucratic insurance schemes.

This sort of insurance is so widespread that fewer Americans purchase health services out-of-pocket than in most other OECD countries. While Swiss, Italian, and Australian out-of-pocket expenses constitute at least one-fifth of health spending, the total is only 12 percent in the US. The US is well below the OECD average of 19.5 percent. The idea that millions of Americans are handing over huge sums of cash out-of-pocket to afford basic medical procedures is fiction.

At this point, the debate isn't over a choice between a market healthcare system or a government healthcare system. We're now just really talking about how much the government sector should grow as a component of all health spending.

Now that the federal government is, by far, the largest single payer for healthcare purchases in the US, we have to openly admit that there is no longer any functioning market pricing system in healthcare. The industry is now dominated by government contracts, government spending, and government regulations on healthcare services.

Of course, prices continue to skyrocket in the US. But this is not because there is too much "market competition," but because healthcare is heavily subsidized by various government interventions. As is always the case, subsidized goods and services experience growing demand as the cost — as perceived by consumers — goes down. This happens everywhere that healthcare is subsidized, but US policymakers, so far, have lacked the stomach for controlling costs by denying care to people, or making them wait in long queues — as is done in other government-controlled healthcare systems.

It would seem that the goal of the free-market reformer in the current climate must be to stop speaking of preventing "socialized medicine" but instead he or she ought to focus on carving out a role for the market in what is clearly a government dominated sector. The discussion is now one of "de-regulation," "flexibility," or "breathing room" for a truly free fee-for-service economy to develop. America now has an enormous "public" healthcare system. The goal now is to carve out some means of escape.